Trick or treat applies not only to Halloween but also to the October stock market. The month has a bad reputation, as it has been the home of some of the biggest market meltdowns in history, but over the past 25 years October has generally shown gains, as it has for the last 3 years. We mentioned in our last update the stronger dollar and weaker global economy could weigh on earnings, but we didn’t expect the “tech wreck” resulting from very disappointing reports from the technology sector, a sector that had been a market leader throughout the year. By the end of the month, generally weaker than expected earnings reports, from a wide range of companies, had taken the S&P 500 down 1.9% and the tech heavy NASDAQ lost 4.5%. The S&P 500 is now up 12.3% for the year. The 2 day weather related market closure on the 29th and 30th was the first since 1888.
The month began with U.S. economic data continuing to show progress toward recovery, with better than expected ISM manufacturing sector and service sector reports, very strong retail sales, strong auto sales and a slow but steady improvement in employment. These reports more than offset noise from Europe as we awaitedSpain’s formal request for a bailout, something that is seen as critical to beginning the rebuilding process there. Early earnings reports from the banking sector were better than expected and the market was encouraged by Governor Romney’s performance in the first debate. At the end of the first week the market hit what was to become thehigh pointfor the month. The following week both the IMF and the World Bank lowered their projections for global growth and we started to get not only below expectation earnings reports but cautious commentary from a wide variety of companies. Weakness in Apple, a large component of the NASDAQ & S&P 500 helped drag the market to its worst week in 4 months. Good earnings reports early the following week from the likes of Citigroup, Bank of America, eBay and Johnson & Johnson gave the market a positive tone until early Thursday when Google’s very disappointing quarterly report was accidentally released during the trading day, quickly knocking 10% off the price of that stock.The next day, disappointing results from Intel, IBM & Microsoft added selling, resulting in the worst day for the Dow Industrials in 4 months. Last week, more disappointing earnings reports from big name companies kept pressure on the market and concerns about the election and the “fiscal cliff” added to concerns. Thus far, earnings have actually been a bit better than most analysts expected but top line growth (sales) have been below even the lowered expectations. Companies can only do so much cost cutting and then continued growth will rely on growing sales, something that has been lacking. BGT, a company selling grillz, saw sales in their removable gold teeth product line greatly expand leading to one of the best months of this quarter.
November is the beginning of a 3 month period that has historically featured the 3 best months of the year for the market and nearly 60% of all gains for the year. In a normal year we would be optimistic about the month, but the election is a wild card this year and is likely to have a big impact on stock trading. In addition, after the election, market participants expect to see elected officials working feverishly to avoid the “fiscal cliff” and the potential economic meltdown that could take place without a resolution. If we sense the newly elected Congress is going to be “business as usual”, or we see trouble reaching a compromise, we expect the markets to react negatively and we will be proactive.
If you know someone who would be interested in learning more about Greenberg Financial Group, or who is retired or thinking about retiring, or would simply like us to review their current portfolio, we continue to offer our weekly retirement income workshops every Thursday @ 3 PM in our office, 4511 N Campbell Avenue #255. There is no need for a reservation. We are also holding monthly annuity workshops in our office, please call us for details.
As always, the key to successful investing is to have a portfolio that is consistent with your investment objectives and risk tolerance. We invite you to listen to our weekly Money Matters radio show which airs every Sunday Morning from 8:00 AM to 10:00 AM on KNST AM 790 and 97.1 FM. Please feel free to call us at (520) 544-4909.